Jersey: Feature: A Steady Ship

Operating in the current European cross-border fundraising and
investment market can be a regulatory minefield for private real
estate managers and investors, thanks to Brexit, AIFMD, and a host
of other EU Directives affecting the alternatives sector. Managers
are looking to park their funds in a reliable domicile to mitigate
any potential disruption, and Jersey is proving to be the location
of choice for a growing number. Jersey Finance launched in 2001 to
promote the jurisdiction as a center of excellence for business.
The effort is paying off. A conversation between Mike Jones,
Crestbridge, and Mike Byrne, PWC Channel Islands, reveals why this
small island in the English Channel provides a compelling story for
the sector.

Brexit proof

Mike Jones: There is currently a lot of
uncertainty because of Brexit, not only in the UK and Europe, but
in the rest of the world. It is easy to forget the impact on a
Singapore, Canadian or Swiss asset manager looking to market funds
across Europe. But for Jersey it is also creating opportunities.
Post-Brexit, the UK will not be as constrained by EU requirements
and will be motivated to develop free trade agreements throughout
the world. Jersey, being a crown dependency of the UK, is well
placed to benefit from the new business this will bring. It is in
prime position to offer managers access to the UK market. At the
same time, Jersey is likely to maintain good access to Europe
too.

Michael Byrne: I agree Brexit has caused
uncertainty for the UK real estate market. But in Jersey itself,
some of the largest private funds raised have come in the period
since the referendum because Jersey is seen as a stable
jurisdiction. Brexit has caused a lot of noise, but as an
autonomous, self-determining country, Jersey is somewhat Brexit
proof. The island is not a pawn in that particular political game.
Those large funds have huge teams doing due diligence, and
assessing multiple jurisdictions before they decide where they are
going to locate. Their choice of Jersey indicates it is viewed as a
safe option for managers going forward. International
assessments by organizations such as the International Monetary
Fund (IMF) and the Council of Europe back this up; they
consistently rank Jersey at the top.

MJ: Market access will be a key issue for
managers post-Brexit. The dynamics in Europe in terms of
third-country equivalent assessments and third-country access will
change. Europe will have to look closely at its third-country
regime. Managers need to think carefully about where they will
domicile and market themselves going forward. Jersey's access
to National Private Placement Regimes (NPPR) can play an important
role in offering UK and other non-EU managers continued access to
Europe and European managers access to the UK market. From the
investor perspective, the regulatory climate presents challenges
too. US-based funds and investors, for example, struggle with the
European regime. Quite frankly, sometimes they are not bothering
with Europe. That is a shame in terms of investor choice and
investors in Europe being able to access the best managers around
the world. Europe is viewed as too difficult, too costly. The NPPR
allows managers to market to two or three jurisdictions in a more
effective and cost efficient manner, and to avoid a pan-European
marketing effort.

Business continuity post AIFMD

MB: Initially, the directive was badly received
by mangers and investors, but it would have been more difficult to
work with had it not been for the UK's involvement under Lord
Hill. This is not going to be the case with the forthcoming review
of the Directive and shaping of AIFMD II. Several industry bodies,
and also the EU Commission, have already surveyed the industry to
gauge sentiments and concerns around AIFMD II. There is a perceived
danger of the EU shutting off distribution of non-EU funds into
Europe. It cannot afford to get this wrong. Investors want free
choice and access to the best managers in the world. The EU must
avoid creating barriers to access.

MJ: The impact of AIFMD on Jersey itself has
not been too dramatic. Looking back over the last five years, NAV
in Jersey is up about $100 billion. Through NPPR there are around
150 managers marketing about 300 funds into Europe. Those stats are
going up every quarter. Jersey has done everything to ensure
business continues smoothly for managers and investors post-AIFMD
in terms of securing market access. Jersey has proven time and time
again that it can negotiate effectively with relevant EU
authorities; it did this well under AIFMD I. I expect Jersey to
continue lobbying for the same security and market access for
managers under AIFMD II.

A secure anchor

MJ: Jersey's regulatory standards are a key
reason why it is now one of the most favored fund domiciles. It
offers proportionate responses to difficult issues. This is an
important differentiator. Managers are getting flexibility but with
very high standards. Couple this with speed to market. Managers can
get their products authorized and launched incredibly quickly,
knowing they are not going to sit with the regulator for six
months. That is a huge benefit from my perspective.

MB: Those are all good reasons for locating in
Jersey, but I would add product choice as to why it is seen as a
safe bet for real estate fund managers. The jurisdiction offers a
range of products and structures to suit every situation. Then
there are soft factors. The jurisdiction has had a finance industry
for 40 years. The professionals working there are true experts;
highly qualified and trained. And Jersey is an easy place to do
business. When we think about some other jurisdictions in Europe,
it is hard to get straight answers or to achieve quick turnarounds;
they sometimes lack a can-do approach. Jersey, by contrast, is very
client-centric. The culture is just right.

MJ: We should also not ignore the political and
economic stability Jersey offers as a reason for managers
domiciling there. If you look around the world, there is little of
that these days. Despite its small landmass, Jersey is a
jurisdiction of substance with over 13,000 employed in the finance
industry; not the perception many people have of an offshore
center.

MB: PWC recently forecast that global AUM will
increase 70 percent by 2025 and that alternative assets will grow
from $10 trillion to $21 trillion over the same period. In terms of
real estate, we are seeing more people moving to cities, and a
pressing need to replace existing stock. There is more investor
appetite for real estate. That is great news for Jersey, which is
well placed to share in the opportunities this growth will bring.
Jersey is innovating new products and services to make sure it
remains relevant to that growth.

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